The telco realized about five years ago it needed to move to invest in the content that was flowing across its pipes, a strategy dramatically realized with AT&T’s acquisition of Time Warner, Goncalves said, speaking at Variety‘s Entertainment and Technology Summit in L.A.
With Otter Media, AT&T is looking to “build brands that stand the test of time,” Goncalves said. The strategy is about placing bets across multiple digital-first, fan-centric properties — with the real jackpot being “if we end up building 10 or 20 of these brands, and two of them end up being billion-dollar brands a decade from now.”
Goncalves added: “We believe we can build — if not the first, one of the first — fan-centric, digital-first media companies. We think we have the assets and the wherewithal to do that. But it’s going to take time.”
Key brands in the Otter Media group are Fullscreen, focused on branded content and influencer marketing; Rooster Teeth, focused on sci-fi and anime-style content; and Ellation, which includes the Crunchyroll anime and VRV subscription-video services.
“We’re at the tip of the spear for where young people consume media, how they consume media and how that gets monetized,” Goncalves said. “We’re going from affiliate fees from cable providers and 30-second ad spots, to video memberships and entertainment as advertising.”
As for how Otter Media will work with other Time Warner divisions (HBO, Turner and Warner Bros.), that will happen in areas where it makes sense, Goncalves said. He pointed to WB-owned DramaFever being included in the VRV channel-subscription bundle for “gamers and geeks.”
Goncalves, interviewed on stage by Variety co-editor-in-chief Andrew Wallenstein, said AT&T’s operating plan is to take the Otter Media assets and get operating leverage to fuel “smart” revenue growth. Until now, they “have been run almost through a private-equity lens” under the joint venture between AT&T and Chernin Group, he said.
AT&T acquired control of Otter Media last month, buying out Chernin Group’s majority stake in the venture in a deal reportedly valued at $1 billion. TCG and AT&T had formed the JV in 2014. With the deal, AT&T is merging Otter Media’s portfolio into the WarnerMedia unit, formed after the telco closed its Time Warner purchase in June. Goncalves, the former DirecTV exec who was appointed Otter Media’s CEO earlier this year, reports up to WarnerMedia CEO John Stankey.
AT&T has given Goncalves and the Otter Media team as much runway as they need “to continue being what we need to be.”
“No one has stepped in and said, ‘We need to do this ‘the AT&T Way,'” Goncalves said. When AT&T acquired DirecTV, where he previously was the SVP of digital products, “the last thing I wanted to do was go to work for a large and theoretically slow, bureaucratic company,” he said. “But it’s a company for change, with individuals who want to drive change.”
Currently, Otter Media brands have more than 2 million subscribers collectively, sell tens of millions of dollars in merchandise annually, and drew more than 150,000 attendees to events last year. “It’s a special collection of assets that are monetized both through subscription and advertising almost equally,” Goncalves said.
In addition to Fullscreen, Rooster Teeth and Ellation, Otter also has ownership stakes in studio and distribution company Gunpowder & Sky and Reese Witherspoon’s Hello Sunshine.
“We get pitched celebrity-led businesses all the time,” Goncalves said. “We’ve done only one” — Witherspoon’s Hello Sunshine — “because she works hard. It’s not a side project.” He noted that at Otter Media’s three-and-a-half-hour board meeting this week, Witherspoon was as engaged as any other board member.
Asked by Wallenstein whether Otter Media was eyeing any acquisitions, Goncalves said the company will act “very deliberately” as well as make opportunistic moves. In the latter category, he cited Otter’s recent investment in Mars Reel, which is focused on high-school basketball highlights. “It has the ingredients of an identity brand… in an interesting space,” Goncalves said.
Goncalves was already intimately familiar with Otter Media before he stepped into the chief exec role in February. He was previously CEO of AT&T’s digital brands where he oversaw the relationship with Chernin Group and also led the strategy for the telco’s launch of the DirecTV Now over-the-top TV service. Prior to AT&T closing its deal for DirecTV, Goncalves spent eight years at the satellite TV operator, most recently as the founding executive of the digital entertainment products group.